Italian Premier Mario Monti's comment Thursday that Greece was likely to stay in the euro currency union helped buoy Europe markets, said Stan Shamu of IG Markets in Melbourne in an email. But he added that "perhaps we are just really tired of hearing how bad things are and just needed something to uplift."

Earlier in Asia, however, gains were stanched by media reports that some of China's biggest banks will miss their annual lending targets for the first time in seven years, analysts said. Hesitation to take out loans suggests companies are delaying investment due to uncertainty about the economic outlook.

Chinese economic growth fell to a nearly three-year low of 8.1 percent in the first quarter and factory output in April grew at its slowest pace since the 2008 crisis, raising the threat of job losses and possible political tensions.

On Thursday, a private survey of Chinese manufacturers showed activity weakened further in May.

Peng Yunliang, a Shanghai-based analyst, said the reading was "worse than expected and contributed to the loss" among mainland Chinese shares. The Shanghai Composite Index fell 0.7 percent to 2,333.55 while the Shenzhen Composite Index lost 1.2 percent to 935.05.

Worries were also to the fore in Europe, where seven of the 17 countries that use the euro currency are in recession. Greece will go bankrupt shortly without an international bailout and could exit the euro ' a financial event that could harm bigger troubled economies like Spain and destabilize Europe's banks.

Despite potentially disastrous outcomes, European leaders failed to find an agreement on how to fix the financial crisis at their latest summit Thursday.

Among unresolved issues was whether euro countries should issue a collective bond. That would allow every country to borrow funds at the same rate, substantially lowering the costs for the more indebted countries. But Germany, the biggest euro economy, opposes the idea.

"One solution maybe the joint euro bond but of course Germany is against it," said Francis Lun, managing director of Lyncean Holdings in Hong Kong. "And with disagreement in Europe, I doubt the EU's ability to solve its current problem. So, I think that is the uncertainty that everybody is worried about."

The likelihood of Greece leaving the euro has been growing since early May, when political parties opposed to the terms of the country's financial rescue deprived pro-austerity parties of a majority at the polls. New elections are planned for next month.

A Greek election on June 17 could see anti-bailout political parties gain power, which would raise the likelihood of the country leaving the euro.